A business valuation helps business owners to assess the value of their business, whether they plan to sell or just are looking to get a handle on their current capital and assets.
Today, both CBD and Cannabis businesses are consistently being formed, all of which compete routinely for market share, and have endured many Cannabis price shifts. When there is a decline in wholesale prices, businesses often resort to reassessing their value.
Cannabis business owners and CBD business owners alike, who haven’t sufficient capital resources and are unable to adjust to the market changes, will more than likely be acquired by another company that has adapted to the change or fold altogether.
With the current business structures, existing companies need to assess and know their own business value so they are able to make knowledgeable decisions about the business and industry next steps.
In the past few years Cannabis and CBD have gone from being entirely illegal nearly everywhere and now it is legal all across Canada and throughout the United States, though there are some regulations and restrictions.
With this massive growth in the industry, many CBD and Cannabis companies have been started up. But, since the market is such a new one, it is nearly impossible to determine which businesses are profitable and have greater values than others.
To get the slightest handle on their worth, these business owners will find themselves having to perform business valuations early on.
To perform a business valuation, there are three very important components. They are the adjusted net asset approach, the market approach, and the income approach.
Regardless of which approach is used to perform the valuation and what type of business it is, including Cannabis and CBD businesses, the principles of the valuation formula will not change. Rather the key inputs for each of these approaches will be directly affected by the specific industry.
Keeping in mind that public transaction data for Cannabis and CBD companies is extremely limited and inaccessible, which can have an adverse effect on performing a business valuation.
In the Cannabis industry, for instance, there are many investors who express interest in purchasing these type of companies.
However, there are also many Cannabis growers with an interest in acquiring Cannabis dispensaries to ensure shelf life.
In this scenario, a Cannabis grower is apt to pay more for a dispensary than an investor would because the grower recognizes the benefits to the growth of its own Cannabis business.